Sunday, January 17, 2016

Small Caps (IWM) and Silver (SLV): All things shiney and small

Please don't construe my endorsement of small caps for the coming week given the kerfuffle we've been through this last week as "over," cuz' it ain't. I had been noticing some divergences emerging in various places, most notably on the weekly charts for $NYSE courtesy of Northman Trader, but given the distance that IWM is outside the Keltner channel and how much the market is generally oversold, what we could be witnessing is the final reprieve before our next leg down. Mella@Mella_TA (of Northman Trader) has put the SPX in the major "buy" zone with a bounce ostensibly to around 2040. I noticed looking at IWM on the weekly chart that a line I had put in a long time ago is now showing up as resistance for the third time (the first two were February and October 2014) and finally this out-of-left-field call seemed to be making sense. What is emerging is a declining megaphone which foretells a lot of volatility in the coming weeks.
Looking at the RSI(5) on the daily chart for IWM a higher low might be going in, giving us a short-term 'buy' signal. I am happy to read this alignment of data as a speculative long/buy.
Also coincident with a retracement in the broad market (and likely fall in the U.S. dollar) is the appeal that silver (SLV) has for me at the moment. I think the daily charts are presenting a lot of momentum developing behind a major move next week in silver and probably precious metals in general.
We are still in our long term bullish declining wedge but momentum has been building behind SLV since 2013. I don't expect this move next week to be "the" move, but I do expect it to leave people thinking a little bit differently about silver and it's future in the broader market.